Interest rate rise could be overkill, say industry leaders

EEF, the manufacturers’ organisation, expressed its disappointment, suggesting that the Bank “now risks a sharper slowdown in the domestic economy than would otherwise be necessary”. The CBI was more slightly more measured. Its chief economic adviser Ian McCafferty said: “A further rise today was widely expected, and the Bank is clearly taking a tougher stance now to avoid the risk of more tightening later in the year.” However, EEF worries that higher interest rates, and the expectations of further increases still to come, are contributing to the strength of the pound against the dollar – making life more difficult for exporters. Said EEF chief economist, Steve Radley: “The previous rises in rates were needed to bring the level and expectations of inflation under control. However, we believe that today’s increase is a step too far and risks slowing the economy unnecessarily.” Commenting, the CBI’s McCafferty said: “There are growing signs that the medicine is starting to work: wage growth has stayed subdued, the housing market appears to be slowing, and high street sales growth is weakening. A slower economy later this year would make it unlikely that the recent ability of companies to push up prices will endure.” Nevertheless, he too warned the Monetary Policy Committee (MPC): “Businesses are concerned that any move to six per cent would be overkill, so now is the time for the Bank to leave a long pause to allow the economy to adapt to these new levels.” How much hope there is of industry’s voices being heard, and acted on, is unclear. The MPC has already suggested that inflation remains a problem, and says that it will be watching the key pricing pressure measures carefully.